Inequality, redistribution and growth: A challenge to the conventional political economy approach

This paper reconsiders the conventional political economy view that: (1) more unequal societies tend to make more redistribution and (2) more redistribution is harmful to growth. We present a number of theoretical arguments suggesting that the two previous implications are not necessarily true and that the empirically observed negative correlation between inequality and growth might just come from the fact that more unequal societies tend to redistribute less which in turn is actually detrimental to growth.